Ex Countrywide Manager Exposes Its Lies

By Ben PopkenJune 30, 2008

A former regional manager for Countrywide Home Loans, the mega mortgage company whose shady mortgage mill came to epitomize the subprime meltdown, went on The Today Show camera to detail some of the company’s questionable practices. Here’s some of the tricks he warned upper management about during his 6-month stint before he was fired for refusing to give loans to unqualified buyers:

Inflating Home Appraisals: Buyers could borrow enough to cover closing costs, but ended up owing more than the house is worth.

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Wow, I bought my house during the boom (with a qualified lender) with a very low down payment. I had to show bank and brokerage statements, as well as proof of income and all that. Amazing what you can get away with.

I’m more interested in how to prevent this sort of thing from happening again. It seems that every time some company does some exotic accounting things invariably backfire and damage the economy (or people’s retirements)… yet nothing is put in place to prevent it from reoccurring.

Bladefist, you can get out of your mortgage too! Clearly a contract signed while inebriated is invalid.

What a great opportunity to saddle total strangers with your debt. Don’t forget to whine a lot while you stop paying on your mortage. But what ever you do, don’t hock the big screen TV or cancel the cable or anything like that that might free up some income.

You have a right to those necessities, just like you have a right to have the Government bail you out of your responsiblities!

@howie_in_az: Most forms of imprisonment seem to be as a deterrent to others (rather than rehabilitation of the individual or redress to those affected). Just my simple viewpoint…at least it might send a signal to other lenders.

@howie_in_az: You want to prevent this sort of thing from happening again, but you don’t care whether people go to jail? May I humbly suggest that sending people to jail would be a step in the right direction of preventing this sort of thing from happening again.

@howie_in_az: Actually arresting and imprisoning people is a good idea. Yes, it would make people feel better, but more importantly, it’s been clear in this country that white collar criminals seldom go to jail. How many other execs might rethink a few ‘creative’ practices when they find their boardroom getting emptier as they find their fellow CEO’s getting locked up?

And the only way to get real meaningful change is a complete overhaul of our government. The laundry list of how government fails to protect common citizenry it is meant to serve is a long one.

Fixing our broken government that currently legislates corporate desires at the expense of the common man will take a long time.

These bubble and burst cycles are all the proof I need that this country doesn’t have a real economy. Since exporting all the wealth creation to places like China, it seems like the only way to gain wealth is to find ways to take it from someone else. Ethics be damned, as long as you don’t cross the gray legal lines, who cares, you’re on your way to your first billion.

I remain hopeful that there’s plenty of civil litigation coming against the CEO and underlings at Countrywide — they deserve to lose their homes. Maybe there’s a few fund managers out there stuck with these horrible mortgage backed securities who are ethical and more importantly, really pissed off about the scam these people pulled. Or maybe criminal proceedings. Either way, the CEO of Countrywide deserves to lose in this game, just like the people his company duped into being stools for their little game and the investors they foisted shoddy loans upon.

I still don’t understand. Allowing someone who doesn’t qualify damages the stock holders. But it definitely helps the buyer who otherwise would have been denied. Is a variable interest rate set purely by the lender? Did countrywide spike the interest because they could, thus causing everyone to be unable to pay? Who sets the variable rate?

@SkokieGuy: No, your house value is declining because it was artificially inflated by this “mortgage mess” a/k/a the housing bubble. In some parts of the country property values are still pretty stable and even increasing.

@Bladefist: It’s easy to look down your nose at folks who bought “mansions” during the housing bubble (which seems odd given that house prices went up so it was HARDER for people to buy anything, let alone mansions, even with liar loans etc..), but keep in mind a lot of people only made the mistake of trusting professionals who clearly weren’t doing their jobs (as this article seems to illustrate).

The state of education in this country, particularly financial, is pretty damn pathetic, but blaming people for “living outside their means” when that’s not the only (or even most important) factor at work is pretty disingenuous. Mortgage brokers, banks, and real estate sellers got greedy and took advantage of people who didn’t know better, and that would have been ok (because, apparently, the people who got taken advantage of deserved it), except that the incestuous relationship between banks and investment firms made it so that just about everyone got burned when the party was over. Once the banks got in trouble, then it was time to do something about the “housing crisis”.

There’s plenty of blame to go around, but if you want to see who’s most to blame, look to see who made the most from this whole fiasco. It wasn’t the random home owners.

Actually, prices aren’t going down due to these practices. Prices were artificially inflated due to these practices. Now they’re going to keep plummeting until they reach fundamental levels. SkokieGuy, you either A) can afford your mortgage and it is fixed, B) can afford your mortgage now, but your payment will increase during the life of the loan, C) can’t afford your mortgage now even though the payment has not increased yet (but it will). If you are A), then you have nothing to worry about. B) or C), and you have no one to blame but yourself. Seriously, I’m all for corporate responsibility, but what about common sense and personal responsibility? Here’s some common sense: Don’t sign something you don’t understand. I’m of the opinion that greed on all sides INCLUDING homebuyers created and perpetuated this mess. Seriously, why would ANYONE sign their life away without knowing the exact details of the contract? And to those who say some people don’t understand such things, I say they shouldn’t buy a house. It’s NOT a difficult thing to grasp. Here’s how you can tell: because anyone can work in mortgages or as a real estate agent, with little to no formal education.

My home is worth the same thing I paid for it five years ago, because of the declining values in my area.

That is not a correction to inflated values, because in a stable economy, real estate should appreciate, albeit, more slowly than some of the stratospheric increases that logically couldn’t be sustained.

And yes, I have a fixed mortgage at a fabulous rate, so the only danger I face is being unemployed and not being able to afford the mortgage as our economy continues to impload.

I agree that the blame is widespread. Congress that was bought and paid by industry and passed changes to banking and investment legislation, unrealistic (and uneducated) homeowners who made foolish decisions, and predatory mortgage brokers, real estate agents, etc. It is a huge systemic problem. The finger points in many, many directions.

@dragonvpm: I understand what happened. And I put 50% of the blame on the professionals that lied/aided them. However, despite our social education being terrible, one must seek information.

I bought my first house this year, and I didn’t know anything about it. I went on amazon, and bought “Mortgages for dummies.” Seriously. It took me 3 hours to read it, and I went in and understood everything my lender said. So I don’t really feel too bad for these people. I don’t put it all on them, because there is so much information, so many papers, it’s nice to trust your lender, but realistically, you need to get educated before you go through the process.

I worked for Wamu during 2006 as things started to go south. While Wamu is by no means free and clear of guilt, I can say we lost a lot of biz to Countrywide and other lenders for not playing ball the way other companies would. I also took calls in the Wholesale Loan Office from brokers who would laugh and call Stated Income loans ‘liars loans’ while they asked me how much they should put in so the computer would approve the loan.

I’m back and food service, and while I’m not making near as much money, I can sleep at night.

SkokieGuy but your house IS deflating or remaining flat because of the bubble correction.The bubble WAS the economy in many parts of the country and was why the politicians and “experts” kept there mouths shut or looked the other way.

Appreciation is not guaranteed in any economy if for no other reason competition of something newer,better,different,better location or maybe a property was not taken care of.

It ashame to because you bought the house straight up and are being penalized for SPECULATION.If were not for the flip shows,infomercials or get rich quick thinking the real estate bubble would’ve been half of what it was.

Continuous straight line appreciation would lead to infinate inflation.Yeah after 30 years you want to sell and move into a retirement home your house should’ve appreciated but anything else it’s the luck of the draw.

I think it was WaMu that was accussed of inflating appraisals last year.This is a big one with me because it is a tool used by flippers.And need I dare say the flipping shows.

Last season on the TV show Flipping Out it showed an episode where the lead flipper;Jeff Lewis admitted to sending contractors on to a property for sale;NOT his to do some quick fixes to increase the appraisal value.Not only did he basically admit to TRESSPASSING but more or less admitted to artificially inflating the appraisal value.He explained a flipper’s credit isn’t that great and that he needed a high appraisal for leverage on a loan.

And not learning his lesson last season I saw this year he is crying that the banks are under valuing houses which makes it harder to sell at higher prices.If nothing else they should use this guy as an example of some of the crap that went on during the bubble.

zentec said:“These bubble and burst cycles are all the proof I need that this country doesn’t have a real economy. Since exporting all the wealth creation to places like China, it seems like the only way to gain wealth is to find ways to take it from someone else.”

Dingdingdingdingdingdingdingding!! We have a wwwwinnahhh! It’s the Texas Way(TM). Now available in all 50 US states and territories. Offer good while supplies last.

How much longer until our politicians cop to the fact that our economy has been completely hollowed out? Ha! Trick question – no one who tells the whole truth about the economy can be elected to public office.

What Countrywide, et al. were doing wasn’t just giving mortgages to people who couldn’t afford them. With every loan they made they were generating more paper to sell in the CDO/SIV markets.

The lenders could make bad or shaky loans knowing that they wouldn’t blow up for maybe a year or two. Meanwhile, the lenders sold those very same loans to investment banks who were happy to buy them. So, the lender collects on original mortgage transaction costs, then makes an additional profit selling off the mortgages, and in the end get the bad loans entirely off their books. The lenders had every incentive in the world to throw underwriting standards out the window.

For the people who say ‘Just don’t sign something you can’t understand.’, give me a friggin’ break. The vast majority of people in this country aren’t going to understand every line of text in the blizzard of paper that it takes to buy a house. So where they get in trouble is relying on so-called “real estate professionals” to guide them through the process and explain what they are signing in terms they can comprehend.

The problem is, none of the people a home buyer works with, e.g.: mortgage broker, lender, realtor, have an ironclad fiduciary duty to the buyer. At their core all of these “pros” are in sales. Their incentive is to get you to sign the most expensive loan they can can convince you to sign or buy the house that provides them with the highest commission.

Wow… I wonder if the rest of the media will actually give a damn about this story. Our outlets ignore alot of things and possibly the pain and suffering of thousands, maybe millions of people will be glossed over for the latest in celebrity news.
I was watching the BBC World News awhile back, man these foreclosures made me sad. These poor people forced to walk around with so little of their possessions and no place to live, all because someone wanted to make a lot of money. Isn’t America grand?

Again, SkokieGuy, 2003 was already getting pretty bubblicious when you signed your contract. Depending on your location, prices could be going down more (or in my case, in southern California, 20-30% more). That means that chances are you overpaid, even 5 years ago. It could be said, though, that you’re better off than most people who bought after you. I wouldn’t be surprised if we go back to 2000 prices (before adjusting for inflation).

@ADismalScience: And this is exactly what is wrong with your industry. Lack of regulation. In my line of business, I have to be licensed to design roads and bridges. If I do something illegal or wrong, I am responsible for it. Same with lawyers, same with doctors. And the reason for this, of course, is that we are all trained professionals. We provide advice and knowledge to people who do not have said training.

Not that we haven’t discussed this until the end of the earth, but OK, here we go again… Countrywide et al were selling a product. Just like Best Buy, just like Ford, just like oh, probably you do. There was a time in this country when you went to buy something from someone you could reasonably expect that they would give you some semblance of an honest education about it. Go to a TV store, they’ll tell you the difference between an LCD and a Plasma. Go to a butcher, they’ll teach you the difference between a loin and a chop. The difference here is that people went in trusting mortgage brokers to educate them about the process. They didn’t do that, and they outright lied about the product they were selling. When that happens across the board, you don’t have an economy, you have a big con game. Or, say, a recession.

I guess you can spend the rest of this recession laughing your ass off about how much better you are cause you knew better. If that makes you feel better, go on ahead, but don’t kid yourself with these bullshit generalizations about McMansion owners with tricked out sound systems. I’m actually in this situation now with a different broker, because they lied about the loan they were selling my fiancee (who bought the house before I knew her). They told her it was a fixed mortgage, when it was- for 12 months, and a dishonest broker lied to my fiancee about what she was actually signing with a stated income loan. When she protested and said that the income he had put down was wrong, the broker told her that it was supposed to work that way, and she didn’t understand the math. We now raise our family in a tiny, two bedroom condominium that wouldn’t qualify as a mansion in any stretch of anyone’s imagination. It’s fine, and I’m grateful to have that, so there you go, but that’s what happens. There were a few guilty homebuyers, but do not kid yourself about who was driving the cab here. I don’t know what it is that makes you not follow the money when these things happen, whether they are wars or economic crises, but you may wanna start. This country is close to collapse due to love of the almighty dollar, but it’s still more fun to wave a flag and take the side of those looting the capital right out of capitalism, I guess.

Yeah, suddenly the chance of being arrested and serving time for a white collar crime would jump to a staggering…. .000005%! I can just see all of the CEOs running for cover now, because millions of dollars, hookers, and everything you want/dreamed of/everyone told you was necessary is not worth the kind of risk that maybe say, sends you to jail for a couple of months if you’re really unlucky!

Damn. After reading this, I’m starting to think it’s better to keep renting instead of finally making the plunge into owning a home. I figured I’d make the jump since I keep on hearing home prices are the lowest they’ve ever been, but after this, I don’t want to be hooked up with a so-called “liar loan”. Scary stuff.

I do feel for your unfortunate situation. But again: This very site teaches us to be skeptical about all salesmen, to educate ourselves about what we’re buying/signing, etc. The bottom line about these companies is if they’re breaking the law, they need to be dealt with. If it’s determined that it’s too important a product to be so unregulated, -that- should be dealt with. However, I cannot IMAGINE having a contract that I sign, without knowing how to read it and thereby knowing exactly what I’m getting into. We CAN protect ourselves, when armed with knowledge. I say your situation is unfortunate, and I hope it works out. But I also feel good in a way, with the hope that such a predicament will teach your fiancee, or anyone who hears such a story, from signing something they do not fully read and understand.

How many people actually took on the mortgage hoping to get the big fat pay raise? To resell the home in 2 years? To win the lottery?

A lot of people took risks. A few will admit that they willing took risks and got caught. Countrywide was just giving their customers what they wanted… the risk of buying a home or a bigger home that what the person could afford.

Sure, not everybody took on a mortgage assuming there was great risk. And some people might have been deceived.

And then there are the greedy sonofbucks that bought a house that was far beyond their means hoping to take advantage of the great Countrywide finance package.

Falsifying information on official documents to get a loan or money.In many circles that is considered fraud.

That being said apparently this guy had more nerve not to sell a house with questionable information than many who actually bought houses using questionable information.

Doesn’t anyone realize in the business world that your name on paper is like your face on the internet.The next time somebody jokingly tells you that you are signing your life away when placing your signature on important documents you’d better believe it.

I see what those are saying about how the realtors and finance types should be there to explain things as much as anything else but when somebody tells you falsifying information is how it’s done I’d think twice no matter what Im signing for.

This guy got fired for performance reasons.Yeah I quess my performance would lag a little in sales if I didn’t lie or help perpetuate or enable fraud.

@Bladefist: Further to your point, in some states the government offers this information for free: [www.hud.gov]

I went in for a 45 minute appointment with a counselor carrying last year’s tax return and 6 months of bank statements. When I walked out I knew the type of mortgage to get, how much house I could comfortably afford and a stack of brochures and pamphlets full of information on everything we discussed. The counselor was also available by phone and email for any additional questions.

When we bought our house, we looked at our finances, decided how much we wanted to ideally spend on a house, and then got a mortgage for about 10% more than that. Anyone who’s asking the agent, the broker, or the bank how much they can afford deserves what they get.

And yes, he found a few nasty things the Bank tried to slip-in at the last minute; to their advantage of course. Of course, they were promptly removed as we went through the blizzard of paperwork. Its amazing watching 2 lawyers duke it out during a closing…..

My Lawyer: “What’s this form” ?
Their Lawyer: “Oh just some required bank forms”
My Lawyer: “No its not. Don’t sign that. It’s Bullshit”
Their Lawyer: “Well, its not really needed anyways. Just a formality”
My Lawyer: “Then why the hell did you want my client to sign it then ?”
Their Lawyer: “Um…um…”

@spikespeigel: It all depends on *where* you are looking, but now is not necessarily a bad time to buy a house. The values are still correcting a bit, but there are a lot of people trying to sell for various reasons. Admittedly if you’re looking in LA you’re screwed for a while longer.

If you are in a non-California or Florida-ish market (no huge bubble), you can still go by the same house-hunting strategies that were used 10/20/30/etc years ago. Sit down with a mortgage broker and figure out how much you can afford INCLUDING taxes and start looking from there. If possible go by a friend’s recommendations for a Realtor, broker, etc.

Read everything and don’t hesitate to ask questions. Like when buying a car, if you get a bad feeling about someone selling you something and they wont answer your questions directly, leave. The *only* times you are rushed in the process are getting your offer accepted and on closing day since by some idiotic tomfoolery they wont give you a look at your final papers until the day before. There is normally 30-45 days between an accepted offer and closing, so take your time to check everything out, get things inspected, check out the neighborhood, etc.

If you’re responsible and take the time to make an informed decision not much has changed except for market price corrections.